What is Paradigm? A Crypto-native Venture Capital

What is Paradigm?

Paradigm is a crypto-focused venture capital that has been investing in the market after the Bitcoin 2017 bubble. Despite starting quite late compared to other venture investment firms, Paradigm is moving at a fast pace. The venture firm is now managing billions of dollars in crypto assets from various funded projects (the latest fund was worth $2.5B).

Starting the journey as a VC, Paradigm is now able to go on the long term with prominent projects from the seed round and many later rounds if they can prove the team's competency and the practicality of the project.

As written on the main website of Paradigm, it will leverage potential ideas in both technical and operational works, including engineering, smart contract auditing, human resource management, as well as development strategies.

In late 2021, Paradigm released the mega $2.5B investment fund which surpassed a16z’s $2.5 fundraising (news: In 2022, a16z raised $9B venture fund). The newest fund of Paradigm showed the fast-moving embracement of crypto since the market is changing day by day with new emerging meta.

Paradigm Team

Paradigm is a big venture firm as it includes 42+ team members, including Paradigm’s collaborators. The team is now in hiring mode, looking for engineers, financial seniors, and others to join the team.

Fred Ehrsam

Fred Ehrsam is the co-founder of Paradigm venture capital and the former co-founder of the largest crypto exchange in the US, Coinbase. Like Suzhu at Three Arrow Capitals, Jason Choi at Spartan Capital, Ehrsam has a trading background as a trader at Goldman Sachs in NY.

The name of Fred Ehrsam was in Time Magazine’s world-changing people and Forbes’ 30 under 30 list when he was at the age of 24 and 25. As shown, he achieved many important milestones at a very young age. Believing in the future of blockchain technology, Ehrsam took a shortcut in his career to build up his reputation and wealth when managing a big VC in the market.

Matt Huang

Matt Huang is the other co-founder of Paradigm and the former partner at Sequoia Capital. Like Fred, he began doing startups as the founder of Hotspots invested by YCombinator. He also invested in tech companies such as Bytedance and Instacart and bought the first Bitcoin in 2012.

The two co-founders of Paradigm skinned in the crypto game early as they invested in Bitcoin when its price was trading at the two-figure number. In 2018, Ehrsam met Hoang at Sequoia Capital, and then they decided to start a venture firm named Paradigm together.

As informed, both co-founders are driven to start a new venture firm to bootstrap crypto startups from head to toe. Paradigm is competent to provide the necessary support with the help of two experienced co-founders.

Paradigm Portfolio

Portfolio Overview

Paradigm was founded right after the height of Bitcoin mania in 2018, and the firm has been actively operating in the market until now. Despite the size of the fund, Paradigm invested in 40+ startups/companies in crypto land. The investment number is still humble when compared to other venture capital like Spartan Capital (60+ investments) or Binance Labs (hundreds of investments).

There are 3 crypto-related companies that Paradigm has exited, including Coinbase, Compound, and Tagomi. Let’s break down the portfolio of Paradigm and see how they go on the development journey with start-up through various investment rounds.

Layer 1/2

• 0(1) Labs is like the crossroad connecting Coinbase and Paradigm in a $15M investment in the lightweight Coda blockchain in 2019. In 2022, the lightest blockchain was renamed to become Mina.
• Optimism, formerly Plasma Group, raised $3.5M in a seed round led by Paradigm and IDEO CoLab Ventures to put forward an L2 scaling solution for the Ethereum blockchain.
• StarkWare raised $75M in a Series B funding round led by a crypto-native venture Paradigm in March 2021. The StarkWare technology aims to accelerate the Ethereum blockchain with a scaling and security solution. In 2018, Paradigm was also the lead investor to raise for StarkWare $30M in a fundraising round. After two investments, Paradigm invested in StarkWare over a hundred million dollars, showing the promising future of the solution itself.

⇒ Paradigm heavily invested in the scaling solutions Optimism and StarkWare to resolve the current limitations of the Ethereum blockchain. The firm also showed interest in the lightweight blockchain Mina and the blockchain interoperability Cosmos.

Infrastructure/Data

• Flashbots is backed by Paradigm to fight back the MEV (Miner Extractable Value) arbitrage strategy that negatively impacts the Ethereum network. Paradigm believes the success of Flashbots can open a future door of scaling the Ethereum blockchain.
• Tendermint, the core contributor to Cosmos Network, raised $9M in a Series A round led by crypto-native venture capital Paradigm in March 2019. Being invested, Tendermint switched to hiring-rapid mode, built a sustainable business model, and continued the growth of Cosmos. $9M was a huge investment in the downhill of the crypto market in the phase 2018-2019. Paradigm participated in the Cosmos development in the early days.
• Tagomi, a crypto trading firm, concluded a $12M investment deal in a funding round led by Paradigm and joined Pantera Capital, Four Arrows, Multicoin Capital in March 2019. After the $12M investment, Tagomi raised a total of $28M from all Tagomi’s investors. The target clients of Tagomi are only agencies looking for financial solutions and consultancy. In May 2020, Coinbase acquired Tagomi and Paradigm exited the firm.

⇒ Tagomi was a complex deal since there were multiple crypto giants participating in the crypto trading firm. Su Zhu once shared his thought that the Tagomi acquisition of Coinbase could create a conflict of interest between Coinbase and other exchanges who were the clients of Tagomi. However, we can see Paradigm made an exit from Tagomi 1 year after the $10M investment, which is a fast move for Paradigm since the firm often stays longer with the project if there’s a light.

Flashbots and Tendermint were invested in by Paradigm to solve the MEV (Miner Extractable Value) arbitrage and the interoperability problem. Paradigm loves investing in projects that have the solutions for current problems or the products fitting the market.

End-User Service

• MoonPay, a crypto payment infrastructure, raised a ground-breaking $555M investment in a Series A funding round led by Coatue and Tiger Global, joined Paradigm as a participant in November 2021. The investment will accelerate every aspect of the company when hiring more to the team, improve the payment methods and explore more uncharted markets in other continents.
• Fireblocks raised $30M in a Series B funding round led by Paradigm and other investors in November 2020. Clients of Fireblocks are Revolut, Celsius, BlockFi, Nexo, PrimeTrust,... are using the crypto asset transfer of the company.
• CoinSwitch Kuber raised $15M in a Series A funding round led by Paradigm and Ribbit Capital in January 2021. Later in October 2021, the India-focused crypto platform concluded a more massive deal worth $260M in another funding round led by Paradigm, Coinbase, a16z, Ribbit Capital, Sequoia Capital, etc. In India, other competitors of CoinSwitch Kuber are WazirX and CoinDCX.

⇒ We can calculate that Paradigm, with other accompanying investors, has invested in crypto frontier projects almost a billion dollars since the infrastructure has been flourishing in 2020 - 2021 with multiple emerging high-speed blockchain platforms. Paradigm knows 2020 - 2021 was the time to invest in projects that build applications on the frontline to facilitate users’ daily basis.

Derivatives/DEX

• Uniswap, the largest DEX in terms of market cap, was invested $1M in the seed round led by Paradigm in Q2 2019. The Paradigm investment in Uniswap aimed to accelerate the development of the Ethereum-based DEX by hiring more team members. In the 2021 bull run, Uniswap was one of the best investments of Paradigm since it became the largest DEX on Ethereum.
• Opyn, a decentralized options protocol on top of ERC20 standard, raised $6.7M in a funding round led by Paradigm and joined Dragonfly (the lead investor in the seed round) in February 2021.

• Synthetix, a DeFi platform for synthetic assets and commodities, raised $12M from Coinbase Ventures, Paradigm, and IOSG in a token sale from the DAO’s treasury in February 2021.
• FTX concluded a mega $900 investment in a Series B round, including Paradigm, Sequoia Capital, SoftBank, Thoma, Ribbit Capital, Multicoin Capital,... in July 2021. FTX trading platform is the main factor helping Sam Bankman-Fried to be the second richest person in crypto behind the CEO of Binance. The massive investment in FTX is to further expand the user base.
• Osmosis is a big bet of Paradigm to the cross-chain future of Cosmos. In Oct 2021, Paradigm led a $21M investment round in a token sale from the Osmosis Foundation treasury, including Nascent, Figment, Terraform Labs CEO Do Kwon,... to realize the most ambitious DEX on Cosmos. This bet was the first DEX invested by Paradigm outside the Ethereum ecosystem.
• dYdX, a derivatives market, raised $10M in a Series B round led by 3AC, DeFiance Capital, Hashed, and Paradigm as investors in January 2021. Later, it raised $65M from Paradigm and other venture capitals to expand beyond Ethereum in a Series C. The trading platform previously raised $10M in a Series A round led by a16z and Polychain capital. With triple staggering investment deals from top VCs, dYdX is now leading the derivatives market in terms of market cap and revenue.

⇒ In the DEX/Derivatives category, Paradigm often participates in the funding or Series round of the startup project. As stated on the website, Paradigm invested from $1M to $100M in each deal to leverage the project's development.

Venture Capital/Company

• BlockFi was invested $100M in three funding rounds joined by Paradigm, ParaFi Capital, Jump Capital, CMS Holdings, and other investors. In addition, in March 2021, it completed a $350M Series D investment round, valuing the company at $3B and accelerating the further expansion to institutional entities.
• Coinbase has a close relationship with Paradigm as the co-founder of Paradigm was the co-founder of Coinbase. We can see some Coinbase Ventures and Paradigm jointly went on some investment deals such as CoinSwitch Kuber, 0(1) Labs, and Synthetix. It can be assumed that Paradigm might support the funded projects to be listed on Coinbase.
• Gitcoin, a decentralized funding platform, raised $11.3M in a fundraising round led by Paradigm and joined IDEO, The LAO, 1kx, Electric Capital,...

Lending/Yield

• MakerDAO Foundation, creation of USD-pegged decentralized stablecoin DAI, raised $27.5M in an MKR sale (5.5% of the total MKR) to Paradigm and Dragonfly Capital to expand the influence of the platform to Asian countries in December 2019.
• Euler, a permissionless DeFi lending protocol, raised $8M in a Series A round led by Paradigm in August 2021. Customers can borrow/lend crypto assets on the platform at relatively fair rates.
• Jet Protocol, a lending protocol on Solana, raised $6.8M in a follow-on round led by Paradigm, Solana Ventures, 3AC, and other investors in November 2021. The investment deal is to accelerate the DeFi product roadmap of Jet Protocol. The investment helps a leg for the development of Jet Protocol in the long term.

• Compound is a Defi startup in 2019 that raised $25M in a Series A funding round led by Andreessen Horowitz a16z, Paradigm, Bain Capital Ventures, etc. The investors planned with Compound to dominate the crypto market with full support. The investment turned out to be successful since the market cap of CMP reached $4B in ATH value.

⇒ Compound and MakerDAO turned out to be the niche winner with TVL of $6.6B and $15B respectively. Euler launched in December 2021, and at the time of writing, the Euler TVL is stable at $27M, which is a long way to reach the TVL number like Compound or MakerDAO.

With the success of the two Ethereum-based projects, Paradigm believes in the future of the Solana blockchain and trusts Jet to reach its full potential.

NFT/Metaverse

• Zora, “Uniswap for NFTs” , said Fred Ehrsam, was invested in by Paradigm in March 2021.
• SkyMavis (Vietnam’s company behind Axie Infinity) raised $152M in a Series B round that includes a16z, Paradigm as one of the investors. SkyMavis will build a sidechain Ronin to continue the scaling progress since the game on Ethereum was limited itself from scalability.
• Royal, 3LAU’s NFT platform, raised $16M in a seed round led by Paradigm and Founders Fund to build an NFT music marketplace focusing on song rights.
• Fractional closed a $7.9M investment led by Paradigm in August 2021 to build an NFT marketplace for NFT collectors, creators, and developers.

⇒ Paradigm invested in most NFT marketplaces and NFT platforms in very early stages. The firm participated as a lead investor to support the projects from the beginning. SkyMavis was a role model of NFT games since it is now nurturing the development of the Ronin sidechain to build an NFT gaming ecosystem.

Others

• TAXbit, a crypto tax and accounting software, closed a $130m Series B led by IVP, Insights Partners, and joined Paradigm in August 2021 after raising $100M in a Series A.
• Spacemesh, a blockchain infrastructure company, might be one of the first Paradigm investments since the company was invested $15M in 2018 with the participation of Paradigm.
• Numerai, a hedge fund and Ethereum-based predictions market project, raised $11M from big venture capitals (Paradigm and Placeholder) in an NMR token sale in March 2019.
• Genesis, a Bitcoin mining firm offering cloud-mining service, closed a $431M investment in a strategic funding round led by Paradigm, including FTX, NYDIG, Ribbit Capital, Electric Capital… in September 2021.
• BetDEX, a sport-betting protocol built on Solana, concluded a $21M investment in a seed round led by FTX and Paradigm, including reputable names: Solana Ventures, Sino Global Capital, Lightspeed Venture Partners in November 2021.
• Reflexer Labs concluded a $1.68M investment deal led by Paradigm with the a16z participation in Aug 2020. The team was planning to build a reflective asset named RAI that closely follows the price of ETH.

⇒ Paradigm selectively added some startups to the portfolio with projects from other emerging niches in 2021. BetDEX and TAXbit are the investments of Paradigm with an effort to diversify the portfolio and closely follow the crypto market in different categories.

In which ecosystem Paradigm invested?

Paradigm invested in Tendermint and Osmosis with the massive investments. The firm spotted that Tendermint is the backbone of Cosmos and Osmosis is the gateway DEX of the Cosmos ecosystem. Blockchain interoperability is the future of blockchains when they are all connected to inter-transfer and intercommunicate.

In late 2021 and in January 2022, Cosmos and Osmosis were going upward as they gained traction. Fueled by the cross-chain narratives, the projects building interoperability created a new meta that can last long since it needs a long time to realize the vision.

Should we follow the Paradigm portfolio?

Paradigm Performance

Paradigm filled the portfolio with crypto startups in various categories, and let’s see the performance of those project tokens that were invested in by Paradigm (ATH prices with prices at the beginning of 2021) as follows:

• Uniswap (UNI): 850%
• Compound (COMP): 550%
• MakerDAO (MKR): 850%
• Mina (MINA): 630% (in July 2021)
• FTX (FTT): 1290%

Like other venture capital, Paradigm regularly publishes news and articles serving the readers eager to dig deeper into the crypto space.

Read more articles written by Paradigm here.

Paradigm Investment Thesis

Paradigm undoubled ranks among the largest venture capitals in the crypto space in terms of capital, ability, and network effect. It successfully incubated some Ethereum-based startups such as Compound, MakerDAO, and Uniswap by strictly following the thesis principles. Let’s explore the general and common statements that lead the investment theses of Paradigm.

• In later investment rounds and seldom in seed rounds: Paradigm only has 5 projects invested in the seed round, revealing the interest of this multi-billion investment firm. It mostly invested in strategic and Series rounds of startups. Paradigm is willing to invest more if the startup shows the future upside.
• Lead investor: In the detailed investment deals of Paradigm in previous sections, we can jump to the conclusion that Paradigm always participates as the lead investor. Projects that have Paradigm as the lead investor can rely on the ability of the Paradigm team.
• Long-term investments: Paradigm is now managing investments in over 40 projects across the crypto space. It recorded that Paradigm only exited 3 crypto projects that they feel it’s high time to pass them on to other suitable investors for further expansion.
• Support in every development aspect: As mentioned, Paradigm can invest not only money but also effort to get startups to the maturity stage (unicorn and decacorn).

Conclusion

We’ve been through the detailed information and some insights about Paradigm, its portfolio, as well as the theses of this crypto-native venture capital.

And that is all you need to know about Paradigm and things surrounding the VC firm. I hope you’ve gained the overview, and our insights will be helpful to you. There will be more articles for other VCs. Stay tuned!